Published January 29, 2009

Cosco announces second delivery reschedule

Some ship owners are trying to buy time as freight market stalls

By VINCENT WEE

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COSCO Corp (Singapore) yesterday announced another rescheduling of delivery dates for four 57,000 dwt bulk carriers, in what looks increasingly like a bizarre reversal of the way the contract wins were announced over the 18 months. Whereas the concern at the time was whether there would be sufficient capacity to fulfil surge of orders coming in, the fear now is whether the reschedulings will keep Cosco's yards busy enough.

Cosco said last Friday that it has agreed to reschedule the delivery of seven ships from two sets of contracts signed in August and September 2007. And earlier this month, it announced a variation order under which two of an order for four vessels will be cancelled and the remaining two vessels will be delivered six months later than scheduled.

The latest reschedulings are part of a 14-vessel contract worth US$525 million from shipowners in Turkey, Portugal, Greece and India, sealed in June 2007. These vessels were originally scheduled to be delivered between August 2008 and March 2010.

The handymax-size ships will now be delivered between four and eighteen months later than originally scheduled. The last of the deliveries will now take place by May 2011 instead of December this year. 'The agreement on the rescheduling of vessels' deliveries has been acceded to upon the request of and after negotiations with the ship owner,' Cosco said. It added that the rescheduling is not expected to have a material impact on its net tangible assets or earnings per share for the year ending Dec 31, 2009.

While it is a relief that most of the order variations so far have been reschedulings, the disturbing trend is that they are now for contracts that have more imminent delivery dates. Shipowners typically need to pay five equal progress payments of 20 per cent each at various points in the building and delivery process.

'The agreement on the rescheduling of vessels’ deliveries has been acceded to upon the request of and after negotiations with the ship owner.' - Cosco

Some of the less well-capitalised small European players that went on a speculative newbuilding order spree in 2007 at the height of the dry bulk boom now seem to be having trouble meeting their financial commitments as they come up, and are trying to buy time while waiting for the freight market to recover.

Analysts are concerned about the lack of clarity going forward. Kim Eng said yesterday that it is maintaining its 'hold' recommendation on Cosco. 'We are also unable to determine the full level of provisioning at this point, raising the risk of further earnings downgrades,' it said. 'We already slashed our forecasts by up to 50 per cent after the profit warning (for FY2008 issued at end-2008).'

Cosco shares closed four cents higher at 81.5 cents yesterday.